Telecom Italia to Revamp

Trading in Telecom Italia (TIM) shares was suspended today at the carrier's own request as its board meets to discuss the Italian giant's future.

The carrier announced Sunday that its chairman met the head of the Italian bourse, Consob (Commissione Nazionale per le Società e la Borsa), to discuss the operator's strategy and the "reorganization of the Group’s fixed and mobile assets," which will be discussed in a board meeting today.

The announcement followed weekend speculation in the Italian media that the carrier plans, ultimately, to sell its mobile business to completely pay off its debt, which at the end of June stood at €41.3 billion (US$52.5 billion). (See Telecom Italia Reports H1.)

The debt-free carrier would then be able to concentrate on fixed broadband and content services, where it has been investing and seeking to expand. (See TI Boosts DSL Speeds, Telecom Italia Bids for AOL Units, TI Develops IPTV With Microsoft, and {doclnk 87396}.)

Speculation has been rife about the carrier's future in recent months, especially regarding Telecom Italia's relationship with Rupert Murdoch's media empire. (See Telecom Italia: No Murdoch Plans.)

But plans to sell off the carrier's mobile operations would come as a major surprise and run counter to previous strategy moves, as the operator has just spent the past two years reintegrating its mobile business. (See Euro Giants Buy Back Offspring and Telecom Italia/TIM Merger Approved.)

And in March this year, the carrier noted "the positive impact of the merger between Telecom Italia and TIM in terms of profitability and strategy. Integration, in fact, has provided a more effective market presence and allowed the Group to capture a greater proportion of traffic migrating from the fixed-line network to the mobile one." (See TI Outlines Strategy.)

The carrier's announcement, though, has spooked analysts. Standard & Poor’s placed the carrier's credit ratings on "Creditwatch with negative implications" because of the "possible drastic reorganization of the group's fixed and mobile assets."

The S&P analyst noted in a prepared statement: "A reorganization of the group's fixed and mobile assets would likely imply a substantial change in corporate structure, and, at first glance, appears to be in contradiction with management's previous strategic initiatives aimed at full integration of the two networks."

S&P also noted that the carrier's discussions "may represent only a first step in what could be a more extensive reorganization, involving significant changes in the group's shareholding structure and financial profile."

Graham Finnie, senior analyst at Heavy Reading, says that divesting its mobile assets would be "an extraordinary move" for the carrier. "It would fly in the face of conventional wisdom that says you need to have a mobile play. It would be a very surprising decision."

The carrier couldn't be reached for any further comment, though its Sunday statement regarding the suspension of its shares noted that a public announcement would be made as soon as the board had agreed on the reorganization strategy.

— Ray Le Maistre, International News Editor, Light Reading